| ? I have a new client who owns a 7-Eleven franchised store (through an LLC). The client and his wife are the only 2 members of the LLC and each one of them has a W-2 issued from the LLC. Their previous tax preparer had always included the income from the LLC on Schedule C. Client has no idea whether they made an election to be taxed as an s-corp. =======>MMLLC owned by married couples COMPLEX ANSWER covering both community property and not. As you can see MMLLC never issues W2 to members UNLESS they are W2 regular EEs. In general, in this case they need to file either 1065 as an MMLLC or 1120S as an MMLLC elected to be taxed as an S corp; they can NOT file Sch C of 1040 UNLESS the entity is a QJV;aslongas the entity is a QJV then each of the couple needs to file Sch C of 1040i mena Both spouses file a separate Sch C, showing that person's share of the income, deductions, and any profits/losses.Both spouses also file a separate Sch SE, showing that person's self-employment income
Or another option is that to file SCh C of 1040 either the husband or a wife needs to be an W2 EE ad the other spouse needs to own the biz as a sole proprietorship. UNLESS they filed Form 8832 and they are both listed as owners of thebiz , then, the IRS will automatically treat the LLC as a partnership. Form 8832 is to tell the IRS how you want your LLC to be classified.
1. The client doesn't recall if they made an election to be taxed as an s-corp. Is there a quick way for me to find out from the IRS?=====>I gess you need to check it with the IRS yu may check if they filed a form 8832; By filing Form 8832 with the IRS, theycan choose a tax status for their entity besides the default status. they can elect to have their LLC taxed as a sole proprietorship, partnership, c corp or s corp. OR you need to check if they filed form 2553. A LLC can elect to be taxed as a C or an S corp. A C corp is taxed on its profits and has to pay federal income taxes. Form 2553 allows a LLC to stop paying corporate income taxes and convert to an S corp. An LLC files Form 2553 to switch from filing as a C corp to filing as an S corp. Like a partnership, an S corp can be a pass-through entity.
2. If the client should have been filing either a 1065 or 1120s, but has only been reporting income from the business via Sch C, do they change now and if so, do they need to go back and amend the last 5 years?===>yes in principle they need to file amended returns for the last five years; A subchapter S corp is a corp that elects for a special S tax status under the IRS. These corpos have to pay severe fines if they file late tax returns. When no tax is due, the S corp is charged $195 for each month it is late, multiplied by the number of people who were shareholders in the corporation at any time in the last year. So, if an S corp has 2shareholders at the end of the year, the S corp will have to pay 2 x 195 for each month the tax return is late, or $390 a month. They need to pay penalties and interes t on FICA taxes not paid for the past five years. An LLC must elect for corporation status on its tax return or, by default, it is taxed as a partnership. If it elected for corporate status, it will be taxed as a C corp and won't owe any fines for late filing. However, if it elects to be taxed as a partnership or if it makes no election at all, it will receive a stiff fine for a late tax return even if it doesn't owe any taxes. In that situation, the LLC will be fined $195 a month for every month the return is late, multiplied by the total number of people who were partners in the LLC at any point in time during the tax year.
In addition to a yearly tax return, I guess many states require corps to pay state franchise taxes and will charge fees if the corp files the franchise form late, even if it owes no taxes. Arizona, however, does not have a state franchise tax for corps.
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